If you pay even the slightest attention to the tech world, you'll know that the "lean startup" has been a red-hot idea over the past few years. It's even been called a "movement." One factor driving this shift has been the ease with which today's entrepreneurs can outsource various functions they once had to build from scratch—including email marketing, invoicing, job boards, advertising, and so on.
Of course, outsourcing hasn't just revolutionized the tech world, it's swept all of business in the past two decades, as companies have sought to both cut costs and focus on their core competencies. The age of the giant corporation that does everything in house is pretty much over.
It's only been a matter of time before outsourcing turned philanthropy upside down, too, and now that shift is well under way. The rise of donor-advised funds are the biggest sign of this change, but another is the success of Foundation Source, the leading provider of foundation services.
Since I've been writing lately about the rise of "lean philanthropy," and predicting the demise of the old bureaucratic foundation model, I thought it'd be good to talk to the high command at Foundation Source—CEO Robert Chartener and Chief Philanthropic and Marketing Officer Page Snow—to learn what they're seeing as they engage with new donors entering the giving scene.
In the tech world, the "lean" ethos is partly fueled by the new outsourcing options, and partly by a desire to be more nimble and smart. Chartener and Page described a similar mindset among many emerging donors.
“There’s been a real change in thinking about philanthropy and infrastructure," says Chartener. "It’s something we see every day.”
In the old model of philanthropy, wealthy people often waited until very late in life to set up a foundation. But today, says Page, more "people are setting up foundations in their wealth-creating years." And because they're still super engaged in their demanding day job, "they don’t have time to coordinate a staff or set up a big organization.”
On the other hand, "they don’t like to make mistakes," Page says. They want expert help and, as business leaders, "they’re used to outsourcing.” Chartener also says that many donors are quite hostile to the idea of hiring staff, because they "want more money to reach the ultimate intended beneficiaries.”
I should add that we see the same thing at Inside Philanthropy in our reporting on emerging donors. Some of these people are moving truly remarkable amounts of money while spending almost nothing on staff or overhead costs. A recent study by Exponent Philanthropy made the same point.
Foundation Source is now in its second decade, but arguably, its moment is really just arriving as a new generation of lean philanthropists come on the scene—many of whom have made their fortunes not in the giant corporations of yesterday, but in younger, more streamlined firms. Foundation Source offers one-stop shopping for anyone who wants all the capabilities of a foundation without the hassles, handling everything from grants processing to legal compliance. It also has a staff of philanthropic advisers that help donors figure out where and how to make grants, an operation overseen by Snow, who previously spent a decade at Pew Charitable Trusts. With ten offices around the country, Foundation Source services 1,100 foundations of all kinds and sizes that have a combined $9.4 billion in assets.
Among other things, the rise of this outfit is yet one more sign of just how much wealth has piled up at the top of the income ladder during America's second Gilded Age.
A characteristic of the new donors coming to Foundation Source is how engaged they want to be in their giving. While they don't want a big organization of their own, they do want to think hard about how to deploy their money. “We've seen a huge shift in people who want to have a lot more say in what happens with their philanthropy," says Chartener. Writing checks to nonprofits and trusting them to spend the money wisely is a lot less common.
Again, the proliferation of engaged living donors is a trend that we see at Inside Philanthropy, and which others have also written about. Chartener attributes that shift to the new donors giving away money and how they've made it. Many of Foundation Source's clients are first-generation wealth creators who are "highly creative." They've done something innovative to get rich, and they're bringing that same mindset to their giving. Or as Page puts it: "entrepreneurs are extremely entrepreneurial about their philanthropy."
Of course, recent philanthropic history is replete with examples of people who thought that because they're so brilliant at, say, designing software, they can also fix big problems in the wider world. And, here, too is where it's handy to hook up with a place like Foundation Source.
“Many clients are neophytes about philanthropy," Pages says. And that's especially true of younger donors who come charging onto the scene. “There’s a learning curve." And one thing Foundation Source's philanthropic advisors can do is make that curve less painful, by helping steer donors away from bad ideas and toward good ones. Even structuring a major gift that is well-targeted can take some real expertise, a point that Frank Monti, who writes IP's Gift Adviser blog, makes often.
But here's an obvious question: Why form a foundation at all? Why not keep things even leaner and put your money into a donor-advised fund, as a stream of high-profiles funders have done lately, most notably Mark Zuckerberg?
Needless to say, that's a question the folks at Foundation Source field often, and we can only imagine the shadow war they're fighting for the hearts of America's rich with the likes of Vanguard Charitable.
Chartener's well-rehearsed spiel in favor of the foundation model boils down to this point: You can do more cool stuff with a foundation than a DAF. When pitching clients, he says, “we tell them all the things they can do with a private foundation that they’re just not aware of." Foundation Sources dedicates a page of its website to explaining the advantages of a private foundation over a donor-advised fund, touting the greater control over giving that comes with a foundation, more options for giving, and the ability to cover administrative expenses associated with travel and board meetings.
You can see how these virtues might connect with activist donors who really want to engage with philanthropy. In practice, though, the growth of donor-advised funds has famously outpaced the growth of foundations in recent years.
This could change as more donors learn about foundation outsourcing options, or run into limitations with DAFs.
Either way, the age of lean philanthropy has definitely arrived.